In his opening statement, Metalitz described how U.S. industries came
together in the early 1980s to seek greater IP protection through trade
policy. Around that time, it was becoming clear that the fastest
growing parts of the U.S. economy relied on IP, and that they were
having troubles in foreign markets where IP was not protected. They
faced other barriers too – there was a close link between piracy of IP
goods and other barriers to market access for firms that rely on IP
protection. An example of other barriers that discriminate against
foreign firms that rely on copyright is an Indonesian ban on foreign
ownership of certain types of firms. The statutory basis for the
Special 301 Report addresses both IP and other market barriers for firms
that rely on IP.

Special 301 has changed over years, and one major reason for this was
the entry into force of the TRIPS Agreement. Most of our trading
partners (other than Russia) are WTO Members, and the WTO rules prevent
unilaterally sanctions. Special 301 was originally meant to provide a
framework to designate certain countries as Priority Foreign Countries,
and then for the US to impose trade sanctions or tariffs in order to
retaliate against their market deficiencies. Tariffs were imposed in
some cases, and brinksmanship with the threat of trade sanctions
occurred in others. This is no longer in practice because as WTO
Members we have an obligation not to discriminate. The U.S. has much
less flexibility to unilaterally retaliate against trading partners,
even if their markets are closed to U.S. goods – we are supposed to
resolve disputes at the WTO. So today, Special 301 is different than it
was originally intended. It helps to convey a sense of priorities, and
shows what the U.S. will be focusing on in bilateral engagements in the
year ahead. It still serves a purpose, even if it is a different
purpose than originally intended.

Matt Schruers began saying that he was speaking on his own behalf,
not on behalf of his organization, the CCIA. He said that the current
discussion is the result of a general decision to make IP a trade issue.
This merits some examination, but undoing that decision is not really
viable approach. Today, IP issues are permanently committed to the
international trade framework, for better or worse.

Regarding trade policy, we come to the question of whether or not we
should be “ramming our norms down other peoples’ throats,” and the
answer is yes. We want others to adopt certain norms, including free
expression, democracy, and intellectual property protection. Special
301 has some positive attributes as a way to export our norms. It is
fast, and it’s a relatively democratic exercise including a transparent
comment process and open hearings. Special 301 is more transparent than
other mechanisms like bilateral trade negotiations.

To other countries, Special 301 is sort of a “kangaroo court” where
we name and shame countries, and it allows us to hold access to our
markets hostage. In trade agreements, the U.S. does not get everything
we want (for instance, we did not get everything we wanted in ACTA, and
we won’t in the TPP.

Our trade policy is good at promoting the interests of firms that
rely on IP protection, but it is slow to respond to other
technology-industry trade barriers like censorship. There are
industrial interests that depend on limitations and exceptions to
copyright, and those interests are not being represented in the norms we
export.

There is a lack of insight into how the norms we export operate. In
developing countries, you see a system that is underdeveloped, both in
protection of IP and in limitations and exceptions. If you never bring
any actions to enforce intellectual property, then the limitations and
exceptions are kind of irrelevant. However, when you strengthen the
protection (as the U.S. is promoting) but not the limitations and
exceptions, you have problems.

Our trade policy seems to miss the distinction between substantive
norms and enforcement of IP. Special 301 tends to focus on the
substantive issues of IP protection in countries, but then call them
‘pirates’ and shame them as though they do not enforce IP because we
disagree with the way in which their IP laws work. This lacks
credibility. For instance, we list Canada as being one of the main
offenders, when there are other countries that have more of a problem
with IP enforcement.

Sean asked Steve Metalitz to respond to the points Matt Schruers
raised regarding the export of norms on limitations and exceptions, and
to discuss differences between the point of view of content-owning
industries and other technology industries.

Metalitz said he would not characterize current trade policy as
“ramming norms down others’ throats,” The WTO has established
international norms that we want other countries to live up to. The
WIPO internet treaties have established other international norms that
80 or 90 countries adhere to. This makes a difference, and asking
countries to uphold their agreements seems moderate. In some non-IP
areas, like free speech, there are weak or no equivalent international
norms.

In terms of access to our market, we have no leverage in 301
proceedings. There will probably never be actual retaliations imposed
through Special 301. In contrast, we do have interest in the
negotiation of trade agreements, where the whole exercise is to
determine under what conditions will we open our markets.

Schruers answered that he agrees with a lot of what Metalitz said,
but he does not think U.S. policy only asks other countries to uphold
their obligations in international agreements. The US often ask for
TRIPS-Plus intellectual property protection. TRIPS obligations used to
be “gold standard,” but now we ask for stronger measures. The U.S. also
asks countries to do more than the WIPO treaties require. One example
is our efforts to export DMCA-style anticircumvention measures, which
are much more detailed than what is found in the WIPO treaties.

Flynn asked the panelists if they believe that all countries should
have the same IP framework (if “one size fits all”), or if there is room
for differentiation between countries.

Schruers said if we seek to harmonize IP, we should think about what
we are harmonizing. For a long time, the US policy was that “rights”
should be harmonized, but limitations and exceptions were
“flexibilities” that countries should be free to adopt or not. But many
U.S. industries rely on legal protection under the limitations and
exceptions in the same way that content owners rely on IP protection.
The lack of trade policy promotion of limitations and exceptions leads
to situations where our firms are getting attacked in other countries
for doing things that are legal in the US (examples including France and
Belgium).

Metalitz agreed that Brazil should not have the same copyright law as
the US, and that one size does not fit all, but he stressed that it is
important countries abide by international norms. Countries can
implement the norms in different ways, but they need to meet the norms –
and this applies to both the rights and the limitations and exceptions.

However, promotion limitations and exceptions is “ramming
our norms down other people’s throats.” The fair use doctrine was a
poison pill in the ACTA negotiation. We should be careful about
insisting countries exceed norms regarding limitations and exceptions.
Schruers noted that geographical indications were a stumbling block in
the ACTA negotiations, but Metalitz replied that fair use was the
“intractable copyright issue.”

Flynn asked Schruers to respond. Is there a problem with promoting norm-plus exceptions as opposed to norm-plus rights?

Schruers said that there are international norms on limitations and
exceptions, such as the news of the day rule. Mandatory minimums exist.
However, the existing norms on exceptions are not the most relevant for
industries with legal exposure. He also said that if the Special 301
Report gets too technical with substantive rules in intellectual
property, this takes away from the real exercise of naming and shaming
those who do not enforce it. Therefore, the proper place for harmonizing
limitations and exceptions is plurilateral and multinational
agreements. One example is the fair use reference in the Korea FTA.

Flynn asked the panelists if the greater transparency in the
negotiation of trade agreements would be good or bad for their
industries’ interests.

Schruers said neither the CCIA nor its members have complained about
the process, and when they reached out to trade officials, they
listened. He acknowledged that this is more meaningful for trade
associations with a DC presence than it is for other interests. He
doesn’t disagree that by doing everything in a nontransparent manner,
(as opposed to more open, WIPO-like negotiations), USTR creates
problems. If the public’s knowledge is based on information from leaks,
not only does the U.S. not get the secrecy it wants, but is looks bad.
We need to accept that the current intellectual property system has some
credibility problems, and recognize that secret negotiations don’t
help.

Metalitz noted that negotiators are faced with rising standards of
transparency. In the past, trade negotiations have never been very
transparent. Texts come out along the line, but the actual meetings
have been relatively closed. U.S. negotiators are probably more prone
to transparency than other country negotiators, but negotiators never
expect to be working in a fishbowl. In the era of wikileaks, people
expect a high level of transparency. It may be harmful for arriving at
good agreements, but it is what the public has come to expect – and lack
of transparency encourages people’s fantasies.

Schruers agreed that it is hard to negotiate in a fishbowl, and that
it causes negotiations to take longer. However, the norms that come out
of transparent negotiations have more credibility. WIPO negotiations
take a very long time but have a lot of credibility. It is also
important that all relevant parties have their interests represented.
In the U.S. Congress, there are backroom negotiations, but people
understand that their Representatives are looking out for their
interest, so they don’t get mad. On the other hand, there is no sense
that USTR is representing everyone in the U.S. It is important that
public interests are credibly engaged in the debates. Otherwise,
secrecy leads to overblown fears in the public, like hype about border
guards seizing iPods, which was never actually intended in ACTA.

Flynn noted that one distinction between Congress and USTR is that
legislation is never classified. When you talk to people on Capitol
Hill, you don’t have to talk in general terms. My sense is that in the
trade world, it happens if you are a cleared advisor who’s signed a
nondisclosure agreement. Is this a problem?

Metalitz said that the institutional expectation of trade negotiators is different. Their work is classified, and it always has been. In some areas of Congress’ business, legislators work with classified texts.

Schruers noted that in the ACTA negotiations, there were individuals
who signed nondisclosure agreements, including people at CCIA, and it
provided a basis for substantive discussion. Also with ACTA, people
were able to have substantive discussions with leaked documents. USTR
has made an effort to reach out to interest groups and to increase
transparency. Much more could be done, but serious efforts have been
made. Metalitz pointed to the example of the Special 301 hearings, in
which even foreign governments can wade in and object to what people say
about them.

Flynn asked the panelists to comment on the Media Piracy in Emerging Economies
report. It accepts the existence of large markets of infringing goods,
which can include up to 90% of markets by volume. It says that piracy is
driven by pricing, not by a lack of IP enforcement. What can the legal
framework do to address this issue, and have your industries looked
into ways to approach it?

Metalitz said that the report’s findings are not novel. IIPA is
often told by officials in developing countries that their product are
too expensive and that the countries would buy more if the products cost
less. As a coalition of trade associations, IIPA can’t get involved
with the prices set by individual companies.

It is not true that companies are uninterested in selling to the
masses, preferring instead to sell at high prices to a sliver of the
market and then attack the masses as with IP enforcement. Businesses
want to find a way to sell to these markets. In the area of business
software, local companies will buy one copy and share it with everyone
else at the firm because they think they can save money and improve
their bottom line. The problem is that the strength of rule of law is
insufficient and the ability to enforce private contracts is limited.

Schruers agreed that the rule of law is not respected in all
markets. In some places no one pays taxes because they know they won’t
get caught and their payments might be misappropriated anyway. This
shows that we need rule of law and a credible intellectual property
system that people will trust. But when you attack local people as
pirates it creates a perception problem.

Media Piracy in Emerging Economies probably has not gotten
as much attention as it should because everyone knows the premise. The
report’s value is that it provides data to support this. The pricing
problem exists. In some situations, companies can only sell in local
markets if they price so low they sell at a loss. Sometimes, you need
to price some stuff at a loss. In those instances, some industries just
don’t enter the market, and people have access to the products at all
unless they buy IP infringing copies.

Metalitz agreed that there is a problem when legitimate products are
simply unavailable, and that in very small, very poor markets, companies
may not want to compete. However, firms want to sell as much as they
can in most markets, and market restrictions keep them out. Whether or
not a good is too expensive is a different question. A business will
probably pay for electricity, will buy furniture, may pay taxes, but it
will see that it can get away with pirating software. This is an
economically rational decision, but adequate enforcement would make it
not rational.

The floor was opened up for Q&A, and the first question was on
DVD and music markets in middle income countries like India, where a
legitimate good can cost far more relative to local purchasing power
than in the U.S. (a DVD can be the equivalent of hundreds of dollars).
What steps are industries taking to be competitive?

Metalitz answered that the DVD market in India is not how most people
watch movies in India. Increasingly, mode of distribution is online,
and hopefully it will lower costs. Companies are trying to get their
products into these Indian markets, but they face barriers. One recent
statistic on ease of doing business ranked India 184 out of 185
countries on the ability to enforce contracts.

The second questioner asked about Special 301. If companies rely on
limitations and exceptions to copyright, shouldn’t USTR promote them as
part of the 301 process to make sure companies like eBay and Google are
not prosecuted overseas?

Metalitz answered that limitations and exceptions are very important
to IIPA’s companies too, but that the statute for Special 301 is focused
on intellectual property protection. It also says that USTR should
protect firms that rely on IP protection.

The next question concerned problems faced by Chinese companies
seeking to buy products from U.S. firms – and US companies looking to
sell products in China – but whose transactions are blocked by
restrictions related to military use. Metalitz answered that IIPA’s
members wouldn’t have a position on the particular issue raised by the
Chinese questioner, but they are generally in favor of greater access to
cross border trade.

The final question concerned the recent WTO cotton dispute won by
Brazil, which then threatened to invalidate US patents as a form of
retaliation. Would this action have been consistent with the WTO as it
exists now? If so, then should the WTO be changed?

Metalitz answered that everyone is glad the patents were not
invalidated, but reason that the WTO is important is that it does
involve cross-sectoral retaliation. It is “part of the fabric of the
WTO.”

Schruers said that the Brazilian threat to invalidate patents as a
trade retaliation is a consequence of linking IP and trade. We think of
enforcement tools as something to use against others, without thinking
that other countries could use them against us. Situations where
countries seek to invalidate patents as a form of trade sanction could
become more common.